China's Labor Shortage Isn't Just About An Aging Population

And this coincides with the country's labor shortage problems, which many attribute to China's one-child policy and rapidly aging population.

However, Morgan Stanley's Helen Qiao argues there's more to that story.

Qiao attributes much of the labor shortage to another trend in China: labor migration.

For a long time, laborers had moved to coastal Chinese cities from central and western China.

But now, Qiao writes, labor demand inland China has surged after the global financial crisis in 2008 prompted by the 4 trillion yuan stimulus aimed at infrastructure investment . This resulted in an industrial migration:

"The attractiveness of coastal regions has declined; migrants are more inclined to stay inland: The younger generation is less eager to migrate to the coast in search of factory jobs, either because they can find the same type of jobs closer to home (helped by industrial migration), or the costs of living in coastal cities are too high. As a result, the proportion of migration workers at Yangtze River and Pearl River Region fell by 0.9ppt and 0.8ppt to 23.1% and 20.1%, respectively, from 2010 to 2011.

Such structural changes in the labor market are natural results of the growth driver rotation toward domestic demand.

After 2008, China was forced to reduce its reliance on external demand as its growth driver by initiating more infrastructure investment projects in central and western regions. Better infrastructure then paved the way for more manufacturing sectors to move to inland areas in 2010-11, triggering the changes in the labor market.

As China further develops its domestic demand, central and western provinces will catch up with coastal areas and the demand for more skilled labor and professionals in the service sectors."